Ben Ysursa, Office of Secretary of StateKeith Johnson, Office of State Controller

Visitors Attending:

DuWayne D. Hammond, Jr., State Tax Commission

CONSENT AGENDA

1. Approval of minutes for May 14, 2002 State Board of Examiners.

2. DEPARTMENT OF AGRICULTURE

Request for authorization for additional deficiency warrant spending authority in the amount of $300,000 for the 2002 Grasshopper/Mormon Cricket Control Program. The Board of Examiners approved $150,000 on February 12, 2002 and this additional funding request would bring the total to $450,000.

3. IDAHO STATE UNIVERSITY

Request for authorization to reimburse additional moving expenses of $2,500 for the position of Assistant Professor in the Department of Pharmacy Practice and Administrative Sciences, for a total of up to $7,500. The Sub-Committee approved $5,000 moving expenses reimbursement on March 7, 2002. The University is prepared to offer this position to a candidate at the level of Associate Professor. Reimbursement will be within the State Moving Policy regulations.

4. SOUTHEASTERN DISTRICT HEALTH DEPARTMENT

Request for authorization to recognize a FY 2002 miscellaneous expenditure of $104.86 to properly account for funds stolen from the Rotary account in 1999. This would require changing the amount listed on the reconcilement form, under “cash on hand” from $540.00 to $565.14 reflecting the petty cash overage of $25.14. The Rotary account would once again balance to the original amount of $4,000. The theft was reported to the police by the Health District.

5. IDAHO STATE POLICE

Request for authorization to pay accrued compensatory time for the following employees:

Request for approval to use Penalty and Interest monies under Idaho Code 72-1348(b) for the following:

1) $18,000 for 2001/2002 membership dues to the National Association of State Workforce Agencies (NASWA).

2) Final Fiscal Year 2002 state matching and supplemental funds for the Idaho Rural Partnership in the amount of $25,000. This will be the last use of Penalty and Interest funds for this purpose.

3) Up to $20,000 per year to assist the Division of Professional Technical Education’s Career Information System (CIS).

4) Department of Labor facility costs:

a. Up to $400,000 for completion of the remodel of the Department’s Lewiston Job Service office. The Board previously authorized $700,000 for this project, which was started in 1998.

b. Up to $150,000 for maintenance and upgrading of the HVAC system at the Department’s Canyon County Job Service office.

c. Up to $65,000 for re-roofing the Department’s Boise Job Service office.

VETERANS SERVICES

7. Request for authorization to lift the vacation accrual cap for six (6) months (until June 30, 2002) for Patrick Teague, Veterans Services Program Supervisor. This employee is required to attend many activities sponsored by veterans’ groups including holiday celebrations honoring veterans, quarterly meetings and annual conventions. The department will continue to work with the employee to ensure that earned leave is taken.

8. Request for authorization to pay 832.70 hours accrued compensatory time for Philip Hawkins, Volunteer Services/Activities Coordinator. Mr. Hawkins has not accrued comp time since the arrival of the new administrator in Boise in October 2001. He is encouraged to take leave but he is required to attend many events sponsored by veterans’ groups. He is currently at the maximum vacation accrual limit and is losing vacation.

9. CORRECTIONAL INDUSTRIES

Request for authorization to pay compensatory time, accrued to take care of several situations due to security, safety, and computer software issues due to the Year 2000 issue, for the following management staff. Correctional Industries is a non-funded state agency and this will have no impact on the general fund. Earned Administrative Leave payoff does not require Board of Examiners approval.

Ratification of the June 3, 2002 Board of Examiners approval of the transfer of $12 million from the General Fund into the state refund account so that tax refunds can be paid timely. Pursuant to Idaho Code 63-3067(4) any unencumbered balance remaining in the state refund account on June 30, 2002, in excess of $1.5 million, will be transferred back to the General fund, unless directed otherwise.

15. OFFICE OF ATTORNEY GENERAL

Notification that Randall A. Peterman of the firm of Elam & Burke has been appointed as a special deputy attorney general for the purpose of representing the State of Idaho in the Jefferson Grain & Seed, Inc. Bankruptcy Matter, Department of Agriculture, pursuant to Idaho Code §67-1409.

16. DEPARTMENT OF HEALTH AND WELFARE – RECOGNITION OF ASSIGNMENT

Request for recognition of assignment as executed by Assignor Heartland Burley, Commercial Partners, Salt Lake City, Utah, and Assignee The Fifth Amendment, Inc., an Idaho corporation, Burley, Idaho, for a lease agreement for space, Lease No. 0455, as extended by Lease Amendment December 1993 and further extended under Lease Amendment/Extension Agreement dated October 14, 1998 for the Department of Health and Welfare’s Burley Field Office Lease, pursuant to Idaho Code 67-1027.

17. DEPARTMENT OF CORRECTION / CORRECTIONAL MEDICAL SERVICES /

ST. LUKE’S HOSPITALThe Sub-Committee members’ recommendation is to deny this claim because it is felt this is not a liability of the State of Idaho.

Request for payment of outstanding claims in the amount of $15,322.09 to the St. Lukes Regional Medical Center (SLMRC) per Idaho Code 67-1023, as well as the amount of contractual adjustments which appear to have been taken when Correctional Medical Services did not have a contract with St. Lukes.

AgencyNumber of CopiesAda County 49Adams County 7Administration, Department of 6Aging, Idaho Office on 1Agriculture, Department of 5Alabama Court & State Law Library 1Arizona Department of Library & Archives 1Attorney General, Office of 44Bannock County 33Bar, Idaho State 1Bear Lake County 7Benewah County 10Bingham County 13Blaine County 12Blind, Idaho Commission of the 1Boise County 6Boise State University Library 1Bonner County 16Bonneville County 20Boundary County 8Building Safety, Division of 6Butte County 7Camas County 4Canyon County 41Caribou County 8Cassia County 14Clark County 6Clearwater County 11College of Southern Idaho 1Colorado Supreme Court Library 1Commerce, Department of 1Connecticut State Library 1Controller, Office of the 5Correction, Department of 14Custer County 6Dairy Products Commission 1Deaf and Blind, School for the 1Delaware State Law Library 1Dentistry, Board of 1Disaster Services 1Division of Veterans Services 1Education, State Board of 1Education, State Department of 5Elmore County 15Endowment Fund Investment Board 1Engineers & Land Surveyors, Board of 1Environmental Quality, Division of 7Finance, Department of 2Financial Management, Division of 5Fish and Game, Department of 8Florida Supreme Court Library 1Franklin County 8Fremont County 4Gem County 10Gooding County 10Governor, Office of the 2Hawaii Supreme Court Law Library 1Health & Welfare, Div of Management Services 32Health Districts, Central 1Health Districts, Conference Office 1Health Districts, District Seven 1Health Districts, North Central 1Health Districts, Panhandle 2Health Districts, Southeastern 1Health Districts, Southwestern 1Human Resources, Department of 2Human Rights, Commission on 1Idaho County 9Idaho State Library 2Idaho State Police 26Idaho State University 3Industrial Commission 5Insurance Fund, State 2Insurance, Department of 3Jefferson County 7Jerome County 14Juvenile Correction Center 1Juvenile Corrections, Department of 1Kansas Supreme Court Law Library 1Kentucky State Law Library 1Kootenai County 40Labor, Department of 6Lands, Department of 5Law Enforcement Training 1Law Library, Idaho Supreme Court 43Legislative Auditor 2Legislative Budget Office 3Legislative Services 12Legislature, House of Representatives 25Legislature, Senate 18Lemhi County 8Lewis County 13Lewis-Clark State College 5Lieutenant Governor, Office of 1Lincoln County 8Liquor Dispensary 1Local Highway Technical Assist Council (LHTAC) 1Madison County 9Maine Law & Leg Reference Library 1Medicine, State Board of 1Military Division 1Minidoka County 12Minnesota State Law Library 1Mississippi State Law Library 1Missouri Supreme Court Library 1Montana State Law Library 1Nebraska State Library 1New Hampshire State Library 1New Mexico Law Library 1Nez Perce County 17North Carolina Supreme Court 1North Dakota Supreme Court Library 1North Idaho College Library 2Nursing, State Board of 1Occupational License Bureau 1Oklahoma Department of Libraries 1Oneida County 5Owyhee County 8Parks & Recreations, Department of 2Payette County 9Peace Officers Standards & Training Academy 1Performance Evaluation, Office of 2Pharmacy, Idaho State Board of 1Power County 7Professional-Technical Education 1Public Utilities Commission 9Public Works Contractors License Board 1Real Estate Commission 1Retirement System, Public Employees 2Rhode Island State Law Library 1Secretary of State, Idaho State Controller's Office 4Shoshone County 15South Carolina Legislative Council 1South Dakota Supreme Court Library 1State of Utah Law Library 1Tax Appeals, Board of 1Tax Commission, Idaho State 18Tennessee State Law Library 1Teton County 6Transportation, Department of 11Treasurer, Office of the State 1Twin Falls County 27University of Idaho 33University of Idaho Library 1Valley County 10Vermont State Library 1Virginia State Law Library 1Vocational Rehabilitation 1Washington County 10Washington State Law Library 1Water Resources, Department of 4Wyoming State Library 1

Governor: The Board of Examiners will come to order. We will turn to our State Controller as Secretary of the Board to present us our report. I will note that our Secretary of State is absent and will be absent for a short period of time, having undergone back surgery. All indications are that he is doing extremely well and we are grateful for that. With that, the State Controller.

State Controller: Governor, we have 18 items on the Consent Agenda and two items on the Regular Agenda. The Board’s Sub-Committee has met and reviewed all these items and recommends that the 18 items on the Consent Agenda be approved.

Governor: Is there discussion? Is there a motion, General?

Attorney General: Governor, I would move the approval of the Consent Agenda.

Governor: I will second that. Further discussion? Those in favor please say aye.

Request for authorization of payment of $100,000 to the surviving spouse of William D. Mann who died in the line of duty on March 12, 2002 in a BOA plane crash. Mr. Mann was a Safety & Security Officer working for the Juvenile Corrections Center in Nampa and was responsible for juveniles in state custody, including during transport from one facility to another.

20. STATE TAX COMMISSION – DuWayne D. Hammond, Jr., Chairman

Request for authorization to transfer $7.5 million from the General Fund into the state refund account such that interest expense will be minimized on any tax returned processed after June 15, 2002, pursuant to Idaho Code 63-3067 (2). The Board approved the transfer of $12 million from the General Fund into the state refund account on June 3, 2002.

State Controller: Governor, we have two items on the Regular Agenda. The first is from the Juvenile Corrections regarding the payment of a death of a law enforcement official in the plane crash earlier this year in March. I believe that Judi Gregory is here. I guess no one is here from the department but this is the item pursuant to the statute where the correctional officer, pilot and one young person was killed in the plane crash. There has been some question about should there be a payment for the pilot as well as the correctional officer, and it is the recommendation of the department that only the correctional officer’s survivors receive the payment.

Governor: Discussion? General.

Attorney General: Governor, J. D., I understand that a line of duty determination was made by ISP and they determined this was in the line of duty. Once again, I think we need to be careful how we handle it so we don’t end up paying about $33,000 in federal taxes. We have been through this before, so subject to that arrangement to insure maximum to the family members I am prepared to support this recommendation.

Governor: Also, J.D., it is my understanding too they are continuing to review with regard to Jay Morris whether there is any sort of similar program they can use.

State Controller: Governor, this statute is one that probably ought to be looked at. It is not really clear and could be fixed quite a bit. As to the taxability, I think we received the clarification we needed from the IRS on the prior payments and that will be the standard operating procedure that we will follow from now on.

Attorney General: I would agree with the Governor and you. I think the statute needs to be looked at because I think there is interpretation out there that if an officer, as an example, were to just drop over from a health problem and expire, that he or she or they would be entitled to $100,000. I don’t think that is what the legislature had in mind when they passed this. I think they were talking about an intervening event other than just health reasons and so forth and so on, and how far we go with it. I think we need some guidance from the legislature to help us a little bit on this thing. Having said all that, I would move for the payment of $100,000 to the family of Mr. Bill Mann.

Governor: I would second that. Discussion? I would just note that it is a tragedy what happened with the loss of all three lives. A very sad occasion. Further discussion? Those in favor signify by saying aye.

Aye: Governor

Attorney General

Opposed, nay. The ayes have it. So carried.

State Controller: Governor, the last item on the agenda, #20, is from the State Tax Commission. I believe Mr. Dewey Hammond, who is the chairman of the Commission, is here to make a request of the Board.

Governor: Dewey, welcome.

DuWayne Hammond: Governor, I have a couple people I would like to acknowledge that are present with me, Governor, Mr. Lance and Mr. J.D. Steve Miller handles all our revenue operations division. That might not mean much to you folks but he handles over $1.9 million tax returns a year. And Dana John, who is in charge of all our tax policy area. I would like to acknowledge their presence today. A brief overview – we have had a unique tax drive and there are two unique items that bring us here today. One is an all time record number of refund requests. Over 70.5% of the income tax returns we have received thus far this year are for refunds. Normal is in the mid 60’s,65 to 66 to 67% and that change amounts to some money. Second item is House Bill 378 that pays personal property taxes for agricultural equipment comes directly off the refund account, and that is $13.4 million on an annual basis. 3.35 per quarter and that has drained this account. Absent the House Bill 378 we would not have made the request of you ten days ago, nor the request today. But we are making the request today, and I have a handout that I would like to share with the members if I may. The first page demonstrates what I have just said. The second page is the flow of funds. Just before we received the $12 million ten days or so ago the balance in the refund account was a negative $11.1 million. With the receipt of $12 million all 35,000 tax returns were processed, paid, put in the mail and received by the taxpayers. In the first five days of June we received – June has an abnormal pattern, well all months have the same pattern, I am trying to say. The first two weeks are relatively low inflow and the last part of the month high inflow when the 20th hits and all the returns, particularly withholding returns come in. That is the pattern. What is unique about June is it wraps up our tax drive, number one. Number two, any refunds not paid on or after June 15 have interest retroactive to April 15.

Governor: Say that again, please, Dewey.

DuWayne Hammond: Okay. Any refunds not paid on or after June 15 get interest retroactive back to April 15. And that is the thing we are trying to prevent. If you authorize $7.5 million transfer from the General Fund today we will be able to process all the returns from the tax drive and not have to pay interest. If you say no to that we will have an interest obligation of about $100,000 to $110,000 is our estimate. The sheet flow shows you the flow of funds. In the first five days $710,500 was deposited to the refund account. Netting it all out last Thursday night the balance was $1,586,000 positive. We project, we show you a range of projections of inflow into the account to the 15th, expected refunds that Mr. Miller has to pay, $9.8 million. Then if you authorize this transfer of $7.5 million the balance after all those refunds are paid would be the range indicated. Now comes the relatively heavy deposits from June 15 to 30 ranging between $12.5 and $14.5 million, and then possible refund payments that Mr. Miller would make depending on correspondence back from the taxpayer, etc. They range from $500,000 in the last two weeks of the month up to $2 million. $500,000 in that neighborhood is closer to reality, I think. So the balance before the statutory reversion is between $10 and $14 million. The statute says that anything over $1.5 million on June 30 is reverted so you see our range of reversion estimates. That is it, Governor.

Governor: So, Dewey, if we follow this through, as you say, the bottom line there is a reversion to General Fund, but you are asking today for $7.5 million extension for a period of how long?

DuWayne Hammond: If you approve the $7.5 million, all of the refunds will be able to be paid before June 15 without interest. There is no real extension in terms of time as we think of extensions, sir.

Governor: What I mean is the reversion to the General Fund.

DuWayne Hammond: That would be on June 30 when we close the books and everything is done.

Governor: So the General Fund is back to what it had been?

DuWayne Hammond: Yes. It certainly will be back. All of the $7.5 million, as you can see, would be repaid, but all of the $12 million will not. Let’s assume if the upper end of the range hits $13.5 million minus $7.5 million, so between $6 to $6.5 million of that original borrowing.

Governor: This is a timing issue.

DuWayne Hammond: Yes, sir.

Governor: Also, I think you are to be commended, and Steve Miller, the fact that you got these refunds processed as quickly as you did because I think in April there was an indication that it might be June 15 before you would get all of these done. And yet you really have done some tremendous effort.

DuWayne Hammond: You asked for them to be returned and Steve turned his folks on and they work almost 24-7. That and the new processing system that you approved several years ago is bringing the returns in faster, and so there has been a lot of effort.

Governor: Good. Questions? General.

Attorney General: Dewey, are you going to pay us any interest on this money?

DuWayne Hammond: No.

Attorney General: In spite of that I would move approval.

Governor: It is an interesting question because while we talk about the fact, Dewey, that if we don’t pay by June 15 we have to pay interest, but by withdrawing this from the General Fund there is some interest lost. But I would imagine the net is that, number one, it is beneficial to the taxpayers. I would second the motion. Further discussion?Those in favor please say aye.

Aye: GovernorAttorney General

Opposed, nay.

Dewey, thank you very much. I think it is telling your statistic there also as you are in the 70% of returns, reflects what has been happening in this economy. Thanks very much, Steve. Thank you for your work. Thank you, Dana. Mr. Controller.

State Controller: We have two items from the State Insurance Fund relating to the balances in the Insurance Fund and the Petroleum Storage Tank Fund. With that, that concludes the agenda.

Governor: Anything else to come before us? If not, we stand adjourned.

INFORMATIONAL AGENDA

STATE INSURANCE FUND

21. Estimate of the State Insurance Fund expenses to be paid by sight drafts for the month of May 2002.